"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

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Friday, October 3, 2014

It comes as no surprise that the mining shares, as evidenced by the HUI and the junior-laden GDXJ have now gone negative on the year. The theme remains the same as it has for some time now - Western-origin investment demand in the gold sector is non-existent.In an environment in which the US Dollar is King of the Mountain once more, commodities are being jettisoned and inflation pressures are collapsing, gold has few friends except for the perma gold bulls.For starters, let's first look at the Goldman Sachs Commodity Index to show the impact from a strong Dollar.

This broad-based index just narrowly missed notching a 4 Year Low today! Let me note for the record that I fully expect it to break the support line on the chart. I just do not know the timing. The reason is based on the chart pattern of the US Dollar - the greenback may have moved strongly higher on the weekly chart ( and indeed it's rally is most impressive ) but on the long term monthly chart, it could move much higher. If it does, the same macro trade that has investors buying US stocks, selling commodities, and moving money into the Dollar in general, should continue.I already posted a weekly chart of the US Dollar this morning, so please reference that. Here however is a monthly or long term chart of the currency. A push through 90, which would be a big deal, unlocks the potential for first a move to 92.50. That would actually open a possibility of a run to 100!

Needless to say, such a run would devastate gold, and silver.

Let's move on to once again note the TIPS spread which continues to plummet. As it does, so too does the gold price. Again, no surprise there.

A surging Dollar working to undercut inflation fears has sent this spread down to lows last seen back in June 2013! Given that backdrop, one could easily understand why Western-based investors are getting out of gold while they can.Take a look at the reported holdings of the big gold ETF, GLD. Remember how popular that once was? Not any more! Holdings are down over 30 tons since the beginning of this year alone and that does not yet account for what was sold in there today. I will get an update on that for the reader when it becomes available.Here is the chart. Note that the last time reported holdings were at this level, it was the second week of December 2008.

So, put two and two together, surging US Dollar, falling commodity prices, + falling TIPS spread, and falling GLD holdings and is it any wonder why gold mining shares are being discarded?

First is the HUI. It has sunk below its 2013 ending level and is now negative on the year.

Next, is the darling of the gold perma bulls, the GDXJ. I find it hard not to be obnoxious at this point but I well remember, and I am sure most of the regular readers/poster here do as well, how we had to suffer through the crowing and cackling of those extolling the praises of the junior miners for 2014 as if somehow they were investing geniuses because at one point its gains were actually greater than those of the S&P 500 for the year. No matter that the index had collapsed from over 160 and was now trading with a paltry "3" handle in front of it. Nope, none of that mattered you see for they and they alone were the truly wise and savvy traders/investors who had recognized the "bargains" in the sector and were now gloating in their new found gains. One can only hope that some of them were actually a lot smarter than what can be deduced from their posts and that they actually managed to sell some of the useless things while they still had some meager gains left in them for the year.

I will have to beg the forbearance of my regular readers if have crossed the line and seem a bit too severe on them. After having to suffer through their annoying and arrogant boasting it is rather amusing to see them get their proper comeuppance in the markets. As said here many times, having learned my lessons severely in the school of hard knocks, there is nothing so fitting for a successful trader than humility. Boasters come and go. I have seen and known many of them over my career. Anyone can have an occasional good trade. Doing it year in and year out, over and over again, takes great skill and hard work with many long hours. The successful trade is a sort of reward in itself because you are in effect pitting yourself against others in the markets. Only one side is going to be right. The losing side ends up donating their money to the winners. That is just a hard, cold fact about a zero sum business. When you lose money you either learn from it, become more humble, less reckless, less prone to boasting or you are soon a FORMER trader or FORMER investor.One last chart for now ( I will get some stuff up later as I have a busy afternoon right now ). Gold Look at the weekly chart and tell me if you can see the Triple Bottom. There is an old trader's adage that double bottoms and double tops tend to hold but triple bottoms and triple tops do not. We are going to see very soon if this is validated this time around. I suspect gold will not hold but could be wrong.

There are a huge number of LOSING LONG POSITIONs among the hedge funds and other large specs in the gold market at this time. I noted that several weeks ago in my analysis of the COT reports that those were underwater near $1220 ( some were under at $1240). Below $1200 it gets even worse. If $1180 goes, ALL of the new ones placed last year and/or this year ARE UNDERWATER.In order for them not to liquidate in wholesale fashion, it is going to take a tremendous demand surge based on a fundamental reason for owning gold. That does not exist at this time. In other words, this time around, a plunge below $1180, if it occurs, is more than likely not going to see a sharp spike higher with an immediate rebound mainly because Western-origin investors see no reason to own gold right now. With hedge funds having an ability to play a market from either the long side or the short side, with gold breaking support, a large number of fresh shorts can be put on below that level with traders then looking for a resistance level to sell aggressively against.If the triple bottom does not hold, I do not see much in the way of downside support until 1150 with a fall to $1100 then not out of the question. We will just have to watch and see what we get. As a side note, I have just glanced at the COT reports and they indicate what has been obvious for some time, traders are selling the metals. more on that later....

It is quite entertaining reading the barrage of emails that regularly hit my inbox detailing over and over and over, the certain demise of the US Dollar. More often than not, it is the usual gold bug chatter about China buying up all the world's gold to make the yuan the new global reserve currency. If not that, it is the regional trading agreements bypassing the Dollar which are going to certainly knock the greenback from its throne.Such things may or may not happen but the point is we have a huge throng of perma gold bulls who continue hanging on to their gold as they have been told that "any day now it is going to launch higher and one does not want to miss the bull move by not having a position". "Once the Dollar goes", so the chatter states, "gold is going to skyrocket".Based on today's surprisingly strong jobs report, that day is going to be postponed for a while longer.Here is a look at the chart of the US Dollar.

Note it has run to the resistance zone I have drawn in on the chart. It is already well past any remaining Fibonacci retracement levels drawn off the June 2010 peak meaning that it is on track for a test of that level up near 89 if it can convincingly clear the 87 level. We'll see if it can manage that but for now, those who have wrongly bet against the Dollar are not looking especially wise at the moment. I wonder what happened to "Mr. Massive Gold buying is taking place". He is especially looking more and more comical with the passing of each week. Please understand those charlatans who keep up with their nonsense have opened themselves up to the scorn that they rightfully deserve among fair-minded and objective people who are trying to read and decipher today's very challenging financial markets. It is one thing to misread a market. We all do that including yours truly as we are all mere mortals at best. However, to persist day after day, week after week, month after month, year after year, with the same utterly discredited rubbish and unverifiable reckless claims, misleading many innocent and sincere people, is simply inexcusable. There comes a time to admit one has been wrong, apologize to those who have been misled and simply go away or close down the various propaganda sites. Maybe then their victims can get on with their lives and try to recoup their losses having learned a valuable, but extremely expensive lesson that they will never forget as long as they live here on this globe.There is an old traders' adage that goes something like this: "The first loss is the best loss". What it means is that once you realize that a trade or an investment has gone sour, you get out - the sooner the better. That first loss, taken early rather than later, leaves a welt but it does not end up obliterating you. Oh that some had learned this lesson and ignored all the "opinions" from the many self-proclaimed experts. Shifting back briefly to the currency front for a moment - it all goes back to interest rate differentials. The strong jobs number has lent further credence to those who are expecting the Fed to move on the interest rate front sometime next year. Yesterday we heard from the ECB and Mr. Draghi that interest rates in the Eurozone are not going anywhere ( except maybe even lower if that is possible) anytime soon. By the way, the notion that the Euro would be higher were it not for the sanctions imposed on Russia is a canard dreamed up by those who cannot read a price chart nor have apparently been listening to Mr. Draghi who has been making it abundantly clear for some time now that Europe wanted a lower currency.Here is the Euro chart. It is falling through chart support levels like a hot knife through butter at this point. There looks to be some mild psychological support near the 1.240 level but more serious support does not materialize until closer to 1.2273 or so. If it goes through that, it is going to 1.2000.

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About Me

Dan Norcini is a professional off-the-floor commodities trader bringing more than 20 years experience in the markets to provide a trader’s insight and commentary on the day’s price action. His editorial contributions and supporting technical analysis charts cover a broad range of tradable entities including the precious metals and foreign exchange markets as well as the broader commodity world. He is a frequent contributor to both Reuters and Dow Jones as a market analyst for the livestock sector and can be on occasion be found as a source in the Wall Street Journal’s commodities section as well as CBS Marketwatch where his views on the gold market can often be found.
He is also an avid beekeeper.

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